The Dutch elections have finally given European voters a real debate on austerity. Right?

At first glance, it appears so: On one side there’s the Liberal Party of Prime Minister Mark Rutte pushing tough deficit cuts, facing off against the Socialists (and to a lesser extent the Labor Party) who want more investment to boost the economy.

But a closer look at the budget plans of the different parties shows that Dutch voters are faced with limited choice when it comes to short-term economic policy: All but one of the major parties are proposing to cut the deficit in 2013.

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The plan from the Socialists – the Dutch anti-austerity party – would actually reduce the deficit to just under 3% of gross domestic product next year, from 4.7% at the end of 2011, according to the Dutch Central Planning Bureau, the official government referee of budget plans. That’s just a bit higher than the deficit the Liberals are targeting for next year.

The Socialists do want to hit the deficit target differently. They’re proposing €3 billion worth of infrastructure investment in 2013 (that’s around 0.5% of GDP, which hardly qualifies as stimulus) combined with tax increases for wealthier people; the investments will help soften the blow to GDP from austerity, making the deficit target easier to hit. The Liberals want to cut the deficit through government spending cuts – mainly through cuts in health care and social security spending. The Labor Party’s plan would also cut the deficit to under 3%.

The only party that wants to increase the deficit is the right-wing Freedom Party of Geert Wilders, which would raise the deficit to 4% of GDP next year. And sure enough, the CPB says the Freedom Party’s economic plan is the only one that would raise real GDP and employment in 2017 compared to current government policy.

But Mr. Wilders aside – it’s unlikely he’ll be part of the next government – fiscal stimulus isn’t one of the options available to Dutch voters, even from the Socialist Party. One reason may be that things are pretty good in the Netherlands. The unemployment rate is 5.3%, still among the lowest in the euro zone. While growth has stalled, the economy isn’t contracting rapidly; the argument for stimulus may not be appear compelling either to Dutch politicians or the Dutch public.

There’s also the “deeply-rooted stability culture” of the Netherlands, as EU economics commissioner Olli Rehn described it earlier this year. Maybe the Dutch, culturally or something, don’t like spending borrowed money. Who knows!

And then of course there are the European Union’s budget rules, which call for the Dutch to bring the deficit under 3% of GDP next year. But the Socialists claim not to care about those.

Still, the economic merits of the Netherlands running a higher deficit are pretty strong, some economists contend. Dutch borrowing costs are at rock-bottom levels. Meanwhile, there are economic risks that could flare into major problems if the Dutch economy contracts. Dutch households are heavily indebted. If unemployment continues rising quickly as it has over the past year, non-performing loans are likely to rise strongly, the start of a vicious cycle that could push the Netherlands deeper into recession. Stimulus would be the Dutch insurance policy against a potentially large economic contraction.

Oxford economist Simon Wren-Lewis wrote in May after Dutch politicians inked a new austerity deal: “There is no, and I repeat no, good macroeconomic reason why a stimulus package should not be implemented here. And yet we get exactly the opposite.”

Comments (5 of 6)

Netherland always has its own way :
First step blame the others
Second step propose some meaningless plan
then there are two possible outcomes
the government declare that is is a great success
if that is not the case
start again from point one
start from from point 1

2:22 pm September 9, 2012

C Freeman wrote:

It's tough to tell what is happening from the article, however I doubt forecasts from the Dutch Central Planning Bureau have anything more to do with reality than those from the GAO. Assuming that tax increases have the same impact on Government deficits as spending cuts it right up there with investing in Tulip bulbs; or should I say solar panels.

11:32 am September 9, 2012

LD wrote:

Ah Keynesianism.. why would that work in Europe if it hasn't succeeded in the US under our current administration?

12:56 pm September 8, 2012

RogerB34 wrote:

Netherlands household gross debt to income ratio 2010, last, is 249 percent.
Germany 89 percent.
“There is no, and I repeat no, good macroeconomic reason why a stimulus package should not be implemented here. And yet we get exactly the opposite.”
There is no V in government spending. Sovereign debt the only outcome. A large household debt burden, limited consumer spending, and insufficient GDP required to support the entitlement state.
There isn't a politically viable solution.

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The Wall Street Journal’s Brussels blog is produced by the Brussels bureau of The Wall Street Journal and Dow Jones Newswires. The bureau has been headed since 2009 by Stephen Fidler, who was previously a correspondent and editor for the Financial Times and Reuters. Also posting regularly: Matthew Dalton, Viktoria Dendrinou, Tom Fairless, Naftali Bendavid, Laurence Norman, Gabriele Steinhauser and Valentina Pop.